The chief executive of the Pension Protection Fund, Alan Rubenstein, has criticised the use of private equity-style fund structures as “unsuitable” for pension funds looking to invest in infrastructure.

In a speech on Tuesday, Rubenstein called for greater pension fund investment in infrastructure projects, but criticised the private equity fund structures as a delivery mechanism.

Rubenstein said: “While there is nothing inherently wrong with the higher risk, short term gain of the [private equity fund] model, it is unsuitable for pension fund investment.”

Rubenstein was speaking at a listed infrastructure briefing hosted by Australian asset manager First State Investment.

Among the criticisms Rubenstein cited were the asset holding periods – typically five to seven years – which he said are too short to allow funds to create an inflation hedge. He also said high levels of leverage and the fees charged by managers were problematic for pension schemes.

Most European and North American infrastructure funds in the market are modelled on the private equity model of a 10-12 year lifespan – split evenly between an investment and realisation phase – with investors being charged an annual fee of between 1% and 2% on their commitment.

The manager will also leverage the assets to generate a higher return and typically collect between 10% and 20% of profits from investments above an agreed rate of return.

The PPF and National Association of Pension Funds are planning to launch a £2bn pooled infrastructure fund by January in a bid to lower fees and cater to the longer-term investments that pension funds seek in the infrastructure sector.

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The Pensions Infrastructure Platform charges a fee of 50bps, Rubenstein said. It has secured investments 10 UK pension funds including the PPF, BT and BAE Systems.

Rubenstein warned that the fund would pursue opportunities that suited it, rather than following a government agenda. He said pension funds are often seen by politicians as "Sir Galahad" riding in on a white horse to fund the public sector pipeline of infrastructure projects.

He said: “We are not here necessarily to fund the national infrastructure plan.”

The UK Government has been keen to encourage pension funds to invest in infrastructure with Chancellor George Osborne saying last November that he was targeting £20bn from UK pension funds for investments in the nation’s infrastructure.

The Department for Communities and Local Government this week launched a consultation on several proposals that could increase local authority pension scheme’s infrastructure investments. One proposal would raise the investment cap for limited partnerships – which is how most infrastructure funds are structured – from 15% to 30%. Another suggested that a separate 15% allocation be created for infrastructure investment.

Infrastructure is becoming of increasing interest to investors looking to diversify their portfolios with $19.6bn raised globally to date this year, according to data provider Preqin. Recent fund closures include Global Infrastructure Partners which raised a record $8.25bn for its second fund over the summer and Meridiam Infrastructure which closed its second North North America Fund II on $1.05bn.

--Write to Kiel Porter at kiel.porter@dowjones.com and Sarah Krouse at sarah.krouse@dowjones.com